ALLIANCEBERNSTEIN HOLDING L.P. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Journey: AllianceBernstein has redefined itself, delivering positive net flows each quarter in 2024 and surpassing $800 billion in assets under management.
• Q3 Business Highlights: Third consecutive quarter of organic growth; active fixed income inflows $6 billion; private markets AUM reached $68 billion; fee rate stabilized; margin accretion initiatives including completion of NYC office relocation.
• Investment Performance: Fixed income: Bloomberg U.S. Aggregate Index returned 5% in Q3; 92% of AUM outperformed over the past year. Equities: U.S. equal weighted S&P 500 up 10%, emerging markets strong; equity strategy performance mixed, with 55% of AUM outperforming over one year.
• Financial Results: Adjusted earnings per unit $0.77, up 19% YOY; net revenues $845 million flat YOY; base fees up 14%; performance fees $26 million; expenses down; fee rate at 39.9 basis points; performance fees from private alternative strategies growing.

Segment Performance

• Retail: Fifth consecutive quarter of positive net inflows, with highest quarterly inflows since 2021 and 7% organic growth rate. Base management fees grew 19% year-over-year and 8% sequentially. Active fixed income inflows totaled $6 billion, with retail taxable and tax-exempt growing 17% and 27% organically annually.
• Institutions: Outflows of $4.4 billion in Q3, driven by active equity strategies. Taxable fixed income grew at 3% annualized organic rate excluding money market outflows. Pipeline fundings were $10.1 billion, with pipeline fee rate affected by lower fee mandates.
• Private Wealth: Modest inflows in Q3, with demand for tax-exempt and alternatives. $700 million raised in Q3, including the CarVal Interval Fund. Base management fees grew 13% year-over-year and 4% quarter-over-quarter.

Guidance

• Adjusted operating margin guided to 33% in 2025 assuming flat markets.
• Performance fees expected to grow at high-teens rates in 2024, with line of sight to $70-75 million recurring hurdle-based performance fees for 2025.
• Margin expansion expected from NYC office move, with incremental 100-150 basis points of margin accretion.

Risks

• Market deterioration could impact margin improvement.
• Lower interest rates may dampen performance fee growth for private alternative strategies.
• Volatility in certain investment strategies.

Question and Answer

Q: Ben Budish on ABPCI performance fees and strategy in declining rate environment.

A: Matt Bass discussed drivers of ABPCI performance fees, including volume in AUM, base rates, spread, and mark-to-market, and noted lower interest rates may dampen future growth but saw line of sight to $70-75 million recurring fees for 2025.

Q: Robin Holby on private markets AUM timeline and Equitable contribution.

A: Matt Bass and Onur Erzan talked about private markets AUM target of $100 billion, organic growth pillars, and Equitable partnership contributing to growth, with $20 billion commitment from Equitable and private wealth raising $2.3 billion in alts in 2024.

Q: Craig Siegenthaler on margin expansion from lease expiration.

A: Jackie Marks confirmed most of the $50 million run rate from lease expiration would flow to the bottom line.

Q: John Dunn on third-party insurers and channel outlook.

A: Onur Erzan discussed growth in third-party insurance channel, including winning a reinsurance company's investment grade product, and Seth Bernstein noted interest from insurers in Europe and Asia.

Q: Rick Roy on CarVal and China strategy.

A: Matt Bass addressed CarVal's long-term growth opportunity and Onur Erzan discussed China as a long-term play with a startup business, having received a license in 2023 and launching a fund in 2024.

Q: Aditya on active ETF opportunity.

A: Onur Erzan and Seth Bernstein talked about active ETFs with $5 billion AUM, 70% new money, and plans to expand to overseas markets like Taiwan and Korea, with ETFs as cross-sell opportunities.